BNB RESTRICTIONS HAVE REVERSE EFFECT
BANKER Weekly Rating of Banks' Activity in CreditingNo restrictive measures can stop the steep growth of consumer credits for the time being. The introduction of 4% minimum mandatory reserves, and afterwards of 8% on the money attracted by banks for more than two years, the deduction of cash money from the aggregate amount of minimum mandatory reserves, and the ban on including the current profit into the equity capital, failed to cool down the aggressive crediting to citizens. Restrictions even resulted in unexpected anomalies. The growth of corporate credits shrank sharply and their total amount rose by only 28% for the first nine months of 2004 - from BGN6.7BN in the beginning of the year to BGN8.6BN in end-September. Loans to firms will hardly register a 40% increase by the year-end, while it was 48% for the entire 2003. At the same time, in end-2004 loans to citizens - consumer and mortgage - will probably register a higher growth than last year. Such a forecast is grounded on BNB's statistics so far. Consumer credits rose by 3.5% per month on average within the first three quarters of 2004, reporting a 46% growth for the period. Bank analysts expect their increase to exceed 57% by the year-end, up from 43% in 2003 as a whole. Housing credits also registered a boom. For the first nine months of this year their aggregate amount went up by 89% - from BGN408MN in January to BGN772.5MN in the end fo September. This kind of loans reported a 7.7% average monthly growth. Some bankers predict that in the end of 2004 housing credits will register more than 100% rise for the year, and their aggregate nominal size will be BGN1BN-plus. That will be due to the massive ads campaigns of banks, the quick lengthening of the term for repayment of housing loans, and the reduction of interest on them. Most credit institutions already offer repayment that such loans within twenty years, and some of them release them at a 7.3% annual interest in Bulgarian currency. This is not at all much, considering that the average interest for holders of one-year and longer deposits is about 5 per cent. These statistical data show that the effect of restrictions, imposed by the central bank, is just the opposite of the expected one. Instead of limiting the growth of consumer loans, banks have shrank the growth of their credits to companies, while loans to citizens are still gaining speed. In fact, back in April 2004 when the IMF for the first time suggested introduction of restrictions on the crediting of citizens, bankers said they would not give up their most profitable activity. The central bank also realized that but for its regret it cannot restrict the increase of consumer credits alone. And this is what worries BNB and IMF experts mostly.The market of consumer credits has a big potential but has its risks because families do not have much experience in accruing debts and their management. I agree to a great extent with the view of some colleagues from the banking community that household crediting is the hen which lay golden eggs. For me, however, the key question is which is the best way to guarantee that the hen laying golden eggs will continue doing that for a long period, and keep in good form at that, BNB Governor Ivan Iskrov said during the cocktail on the occasion of the Banker's Day on December 8, hosted by the Association of Commercial Banks.It's a fact that proceeds from interest on credits account for more than 70% of all revenues within the finance system. This is a sufficient reason for banks to aim at increasing the volume of allocated loans. But this does not mean that big proceeds are directly dependent on the big size of consumer credits. This is confirmed by the rating of the most actively creditinginstitutions which the BANKER weekly makes each quarter. Under its methodology the banks are ranked according to three indicators: total amount of released credits, ratio between loans and the institution's balance sheet value, and growth of allocated credits within a year. The banks, ranking in the first ten positions according to all three criteria enter the group of the most actively crediting institutions.In the end of September 2003 only DSK Bank and Raiffeisenbank (Bulgaria) met those conditions.DSK Bankis a typical example of quick and successful market expansion due to active consumer crediting. The institution is a kind of a monopolist in this kind of services as in the end of September 2004 the loans it had allocated to citizens accounted for some 66% of all consumer and mortgage credits within the system. The bank's management has succeeded to keep that market share and within the first nine months of the yеar increased total volume of loans to citizens by more than 56%, which rose from BGN952.9MN in the beginning of January 2004 to BGN1.49BN in the end of September. However, the growth of corporate credits is considerably higher. They rose by 79% from the beginning of the year till end-September, going up from BGN238MN to BGN425.8MN. Thus, the DSK Bank's management fulfils one of the targets, set by its owner - Hungary's OTP - in end-November 2003. The Hungarians then declared that within two years the Bulgarian institution should be holding 8% of corporate credits. Back then it was holding only 3.4% of it and a year later (September 2004) its share was already 5 per cent. According to heads of rival financial institutions, the quick increase of DSK Bank's corporate credit portfolio is very risky as more than 80% of all loans to firms are concentrated in about twenty big credits. They underline as well that the employees of the former savings bank lack experience in servicing big corporate credits. Currently, however, there are no signs that the bank has problems caused by corporate loans. In end-September 2004 DSK Bank ranked first according to the aggregate volume of allocated credits, totalling BGN1.87BN. The institution rates tenth according to the share of loans in its balance sheet value - 66.9%, and it's sixth according to the growth of allocated credits within a year.Raiffeisenbank (Bulgaria)is quite the reverse of DSK Bank, not only regarding its business policy, but in the sphere of crediting itself. Traditionally, the financial institution has been oriented to more affluent Bulgarian citizens. Concerning credits, it definitely lays the priority on corporate credits and the bank's strength is in them. According to loans allocated to firms - amounting to BGN830.8MN in end-September 2004, Raiffeisenbank (Bulgaria) ranks second in the domestic finance and credit system, following BULBANK which controls 10% of that market. Within the first nine months of the year the bank increased its financing to companies by 35 per cent. The growth of loans, extended to citizens is much greater, but the institution started its activities from almost zero point in that sphere in 2004. In the beginning of the year the amount of mortgage and consumer credits, allocated by the bank, amounted to BGN24MN, going up to BGN79MN in end-September. Raiffeisenbank (Bulgaria) rates fifth according to the aggregate amount of released credits - BGN895.74MN, and the share of loans in its balance sheet volume - 68.7% - ranks it fourth. In the September 2003 - September 2004 period it reported a 63.6% growth of credits, ranking thus eighth according to that indicator. According to Momchil Andreev, Chairman of the bank's Management Board, the financial institution will continue to lay the accent on corporate crediting in 2005, underlying that the bank has the opportunity to maintain an active crediting policy not only due to the increase of its equity capital by EUR15MN, but also because of the considerable rise of natural and juristic persons' deposits. In fact, DSK Bank and Raiffeisenbank (Bulgaria) representthe two trends of developmentof leading banks in this country - corporate and consumer. In 2004 we witnessed how HVB Bank Biochim, First Investment Bank (FIB) and even BULBANK, known to be mainly oriented to servicing firms, made considerable efforts to expand their market share in consumer and mortgage banking. And traditional leaders in services to citizens, such as DSK Bank, invested significant financial and human resources to step onto the corporate market. Most of the big banks are obviously trying to reach a balance between services to various kinds of clients by strengthening their weaker positions without stepping back from their achievement. It is a fact that no other credit institution in Bulgaria except SG EXPRESSBANK could boast of maintaining a parity between loans extended to citizens and firms. Aiming to achieve that, however, banks are getting more and more inventive in their aggressive crediting policy, which even BNB's restrictions failed to cool down.